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Queensland Economic Advocacy Solutions

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Infrastructure Australia’s Jekyll and Hyde 2019 Infrastructure Audit

Infrastructure Australia has released its second national audit and like its predecessor in 2015, the 2019 Audit is intended to guide the next wave of infrastructure reform in Australia.

The 2019 Audit covers transport, energy, water, telecommunications and – for the first time – social infrastructure.  It looks at both the major challenges and opportunities facing Australia’s infrastructure over the next 15 years and accordingly can be likened to Dr Jeckel and Mr Hyde.

Infrastructure is fundamental to our quality of life. It connects us to jobs and enables the economy to function. However, too often our infrastructure doesn’t meet these needs. Congestion, crowding, rising costs, outages and declining service standards can undermine these core roles. The Audit confirms more must be done if we are to maintain, let alone enhance, our quality of life and economic efficiency.

Australia’s infrastructure faces a range of challenges– vast distances, extreme weather, increasing maintenance backlogs, rapidly growing cities coupled with below OECD average for infrastructure investment. Key points from the Audit include:

  1. Since 2015 over $123 billion of work has commenced, with a committed forward pipeline of over $200 billion.
  2. However, changing and growing demand, and a mounting maintenance backlog, mean a new wave of reform and investment is necessary to ensure quality of life and economic productivity are enhanced over the next 15 years. By 2034, Australia’s population is projected to grow by 23.7% to reach 31.4 million, adding to infrastructure demand, while existing infrastructure struggles under maintenance backlogs and the condition of many assets is unknown.
  3. Constant and rapid change is creating challenges for the way we plan, deliver and operate infrastructure. For example, the sharing economy has rapidly grown across infrastructure sectors, particularly the transport sector where the use of ridesharing services have more than tripled between 2015 and 2018.
  4. Growing social, economic and environmental interdependencies have added both complexity and opportunity to the planning, delivery and operation of our infrastructure. For example, the increased uptake of electric vehicles will have implications for the energy sector. By 2040 40% of our vehicles are likely to be electric.
  5. Infrastructure is facilitating structural changes to the Australian economy, as we shift away from traditional industries, such as manufacturing, towards knowledge and service-based industries.
  6. Australia’s national productivity and global competitiveness rely on efficient infrastructure networks, however we are falling behind international competitors. Australia currently ranks 18th in the world for ease of doing business, having dropped over the past decade from 9th.
  7. Population growth impacts are being felt in fast- growing cities as infrastructure is placed under pressure, including congestion on our roads and crowding on public transport. 77% of population growth over the coming 15 years is projected to occur in our fast-growing cities (Sydney, Melbourne and Brisbane), leading to pressure including road congestion growing by $18.9 billion to $38.8 billion in 2031.
  8. People live in diverse areas across Australia (and Queensland), from fast-growing cities to remote areas, meaning infrastructure accessibility, quality and cost differ for users in different places. For example, the National Broadband Network (nbn) is able to deliver internet speeds via Fibre to the Premises of over 100 Mbps to some residents in urban areas,14 whereas some remote areas rely on satellite services that can only deliver speeds of up to 25 Mbps.
  9. Policy uncertainty and poor coordination has affected investment in the energy sector and delayed an effective response to rising energy prices, impacting energy reliability and increasing community anxiety regarding climate change. Over the past decade, the unit price of electricity has risen in real terms by 56%, while retail gas for households has risen by 45% over the same period.
  10. Some infrastructure services will continue to require government subsidies, however these are not transparent and often poorly targeted to those in need. There are 315 community service obligations for infrastructure, 39% of which are not transparent.
  11. New data is being generated in real-time on the performance and use of our infrastructure, enabling improved decision making by users and operators. Road agencies are providing live traffic data on smartphones, in car devices and roadside signage, while transport operators are using smartphone data and third-party apps to show train carriage capacity and to direct waiting customers to empty carriages.

Looking to the future, Australia faces an unprecedented period of uncertainty, our population is growing and changing, the structure of the economy is shifting, our communities and environment are experiencing weather extremes, and rapid technology change is fundamentally reshaping our day-to-day lives. As a result, Infrastructure Australia indicates Australia must evolve the way we plan for infrastructure to embrace this uncertainty. Historically, infrastructure planning has sought to predict future conditions and then provide infrastructure to meet anticipated demand. Today, we require a more robust approach.

Rather than projecting forward the status quo, our infrastructure planning should set an ambitious vision for the country, anticipate and adapt to change, manage risk, and deliver infrastructure that works towards – rather than against – the current and future needs of Australians.

The Australian Infrastructure Audit is the starting point for this process and it confirms sustained reform and increasing investment are required.

The full audit can be accessed here.

QEAS work features in draft Brisbane Airport Masterplan 2020

One of the exciting projects QEAS has been involved in is working with the Brisbane Airport Corporation to evaluate the economic contribution of BNE’s new runway.  Some of this work has recently featured in the draft Brisbane Airport Masterplan 2020 that is out for consultation at present.

Due to open in 2020, Brisbane Airport’s new runway will be a key driver in the long-term growth of the Queensland economy. QEAS analysis revealed that the new runway is set to generate new jobs, create new investment and boost economic opportunity in Brisbane and across the state. 

Forecasts indicate that the direct economic contribution to the Queensland economy attributable to the runway will rise over the next 20 years to an estimated $2.1 billion with an indirect contribution growing to an estimated $1.1 billion. 

It is anticipated that this contribution will directly support more than 18,600 jobs by 2040-41 and another 8,700 indirectly. Each of the new jobs created will result in wages being paid to Queensland workers and their families. It is estimated that by 2040-41 Brisbane airport based business and their supply chain as a result of the new runway will be contributing $1.2 billion in direct wages and $640 million in indirect wages to employees in Queensland. 

In short, as a key enabler to Queensland’s economy and catalyst for future prosperity, the new runway is essential for the whole state.  

The 27,000 plus jobs are equivalent to around 0.6 per cent of all jobs in Queensland and the $3.2 billion in economic activity will represent approximately 0.5 per cent of Queensland’s Gross State Product. These contributions are in addition to the already sizeable economic benefit that BNE provides to the Sunshine State.

This QEAS work helped to demonstrate the economic activity created by BNE’s new runway in an accessible and digestible manner.  In summary, it will enable continued growth bringing more flights, more choice and better service for business, exporters and leisure travellers that is in turn benefiting thousands of employees and businesses across the State.

For further information about the considerable economic contribution of BNE’s second runway and to have a say on the draft Brisbane Airport Masterplan 2020 click here. 

 

Brisbane CPI up 1.7 per cent

Brisbane's CPI is up by 0.6% in the June quarter and up 1.7% over the year and compares to respective increases of 0.6 per cent and 1.6 per cent for the average of the eight Australian capital cities.

Brisbane's increase was mainly due to automotive fuel (+10.7%) but was partially offset by Electricity (-5.1%) thanks to the Affordable Energy Plan with households receiving a $50 electricity rebate.

This latest quarterly result continues the remarkable trend of stability since 2015 where CPI has had only minimal change due to what is considered to a be reluctance by businesses to increase the prices of goods and services for fear of losing market share (a reflection of reduced demand in the economy). CPI measures continue to track below the RBA target range providing further ammunition for a possible rate reduction by the Reserve Bank.

Growing pains for Brisbane commuting times

Lengthy commutes have repeatedly been shown to have enormous cost on our economy delaying workers getting to their place of employment and the flow of commerce.

The 2019 Household, Income and Labour Dynamics in Australia Survey (HILDA for short) has revealed that Brisbane’s commute times have blown out by 45 per cent over the past 15 years (the highest of all capital cities) and that Brisbane now has the second longest commute time only behind Sydney.

The below table shows that daily commuting times vary considerably between locations. In each year, average daily commuting times are longer in every capital city than in other areas of the same state. 

Within the group of capital cities, Sydneysiders have consistently had the longest average daily commutes, reaching approximately 71 minutes in 2017. The order of the other capital cities varies over the period but in 2017, people in Brisbane had the second-longest commute (approximately 67 minutes), followed by workers in Melbourne, Perth and Adelaide. 

A link to the HLIDA survey is available here

Infrastructure Australia green lights $2 billion in Queensland road upgrades

Infrastructure Australia has given the green light to $2 billion in Queensland road upgrades.  A copy of the Infrastructure Australia statement is below:

More than $2 billion worth of planned upgrades to the Bruce Highway and M1 Pacific Motorway have been given the green light by Infrastructure Australia, after the business cases for three Queensland projects were approved by the nation’s independent infrastructure advisor and added to the Infrastructure Priority List. 

The Infrastructure Priority List is a pipeline of nationally-significant proposals for governments at all levels to choose from. It now includes three new Priority Projects for Queensland: Bruce Highway – Cairns Southern Access Corridor – Stage 3: Edmonton to GordonvaleM1 Pacific Motorway (Eight Mile Plains to Daisy Hill) and M1 Pacific Motorway (Varsity Lakes to Tugun)

Being included as a Priority Project on the Infrastructure Priority List shows that a proposal has undergone a rigorous business case assessment and been proven to have significant benefits for the community. This supports better project selection by ensuring Australia’s governments are presented with the best available evidence when making funding decisions.

With the addition of the Bruce Highway duplication between Edmonton to Gordonvale and upgrades to two sections of the M1 Pacific Motorway – Eight Mile Plains to Daisy Hill and Varsity Lakes to Tugun – the Priority List identifies close to $4 billion worth of nationally-significant projects for Queensland, which are critical to improving both productivity and quality of life.

Responding to the challenges of growth and capacity constraints on Queensland’s infrastructure networks is a common theme in the latest additions to the Infrastructure Priority List, with improving travel times and road safety a particular focus as congestion increases on key freight and passenger routes.

The Bruce Highway proposal aims to ease capacity constraints by creating a four-lane highway between Edmonton and Gordonvale. This section of the Bruce Highway will cater for significant population growth in Cairns, but drivers already experience significant delays during morning and evening peaks, as well as a high crash rate. Between 2007 and 2012, 79 crashes were reported along this section, almost double the rate reported on similar roads across Queensland.    

The M1 Eight Mile Plains to Daisy Hill upgrade will improve one of the busiest sections of the motorway. 150, 000 vehicles travel on this section of the M1 each day and this will grow to over 200,000 by 2041, driven by population growth in Southeast Queensland. With a proposal to widen an 8.5km northbound section of the motorway and improve local busways, the project is expected to help accommodate 25% more traffic and relieve congestion in this area for the next 15–20 years. The project also supports active transport through the provision of an extended cycleway.

The M1 Varsity Lakes to Tugun project proposes to improve a congested section of the motorway that connects northern NSW and the Gold Coast. Increased traffic volumes are causing a high number of accidents and worsening travel times, impacting on local residents travelling to work as well as tourists, tour operators and freight vehicles. Widening the motorway in both directions will reduce congestion along this vital corridor, and support the Gold Coast’s economic development.

The Queensland Government have submitted a large number of business cases to Infrastructure Australia for assessment in recent months. This includes considered proposals that progress the staged upgrade of the Bruce Highway and M1 Pacific Motorway – two key parts of the National Land Transport Network with strategic significance for a growing and changing Australia.

The Infrastructure Priority List for Queensland is available here

 

 

RBA Cuts Official Cash Rate to just 1.0%

The RBA has today cut the official cash rate to just 1.0%, the lowest rate on record and also the first time since 2012 that the RBA has moved two months in a row with a cut. 

Generally QEAS believes the cut was warranted however it cements a perception that the economy is underperforming that may further compound a slump in confidence and consumption spending at present.

QEAS is hopeful that the combination of the cut in interest rates coupled with income tax cuts will hopefully provide the impetus that is very much needed for the Australian Economy.

A brief summary of the RBA reasoning behind the cut is provided below.

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.00 per cent. This follows a similar reduction at the Board's June meeting. This easing of monetary policy will support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.

The outlook for the global economy remains reasonable. However, the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside. In most advanced economies, inflation remains subdued, unemployment rates are low and wages growth has picked up. The slowdown in global trade has contributed to slower growth in Asia. In China, the authorities have taken steps to support the economy, while continuing to address risks in the financial system.

Global financial conditions remain accommodative. The persistent downside risks to the global economy combined with subdued inflation have led to expectations of easing of monetary policy by the major central banks. Long-term government bond yields have declined further and are at record lows in a number of countries, including Australia. Bank funding costs in Australia have also declined, with money-market spreads having fully reversed the increases that took place last year. Borrowing rates for both businesses and households are at historically low levels. The Australian dollar is at the low end of its narrow range of recent times.

Over the year to the March quarter, the Australian economy grew at a below-trend 1.8 per cent. Consumption growth has been subdued, weighed down by a protracted period of low income growth and declining housing prices. Increased investment in infrastructure is providing an offset and a pick-up in activity in the resources sector is expected, partly in response to an increase in the prices of Australia's exports. The central scenario for the Australian economy remains reasonable, with growth around trend expected. The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income is expected to support spending.

Employment growth has continued to be strong. Labour force participation is at a record level, the vacancy rate remains high and there are reports of skills shortages in some areas. There has, however, been little inroad into the spare capacity in the labour market recently, with the unemployment rate having risen slightly to 5.2 per cent. The strong employment growth over the past year or so has led to a pick-up in wages growth in the private sector, although overall wages growth remains low. A further gradual lift in wages growth is still expected and this would be a welcome development. Taken together, these labour market outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.

Inflation pressures remain subdued across much of the economy. Inflation is still, however, anticipated to pick up, and will be boosted in the June quarter by increases in petrol prices. The central scenario remains for underlying inflation to be around 2 per cent in 2020 and a little higher after that.

Conditions in most housing markets remain soft, although there are some tentative signs that prices are now stabilising in Sydney and Melbourne. Growth in housing credit has also stabilised recently. Demand for credit by investors continues to be subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.

Today's decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time.

Queensland Budget 2019-20 Business Update

This budget has been labelled as a big borrowing, a big spending and a big taxing budget.  It is certainly all of those three things.
 
It is not an election budget but it is 100% a budget that is squarely designed to sure up support following significant concern by the State Government over the recent Federal Election wipe out north of Brisbane for Queensland Labor.  This is the context to bear in mind in its framing.
 
Key points to highlight include:
 
Economic growth for 2019-20 will be 3.0%, revised up from 2.75% at the mid-year fiscal and economic review (MYFER), which is good news.  However a hefty portion of this growth will rely on exports and domestic economic activity will be subdued. Employment will continue to grow but at 1.25% compared to MYFER’s estimate of 1.75%.
 
There is a surplus of $841 million in 2018-19 which is $317 million higher than at the MYFER in December. The surplus of $189 million for 2019-20 is broadly in line with the MYFER estimate of $193 million. Surpluses are forecast across the forward estimates.
 
Total Government plus Government Owned Corporations (GOCs) debt is rising across forward estimates. The debt to revenue ratio is increasing from 105.5% ($71.4b) in 2018-19 to 122.5% in 2022-23 ($90.7b). This contrasts with NSW (85%) and VIC (76%) the two AAA rated states. Queensland would need to pay-off approximately $11 billion in debt to get our AAA credit rating back.
 
The infrastructure spend of $49.5 billion across the next four years and $12.9 billion in 2019-20 will support jobs. However infrastructure spend as a percent of GSP at the MYFER for 2019-20 was 2.9% and it will now only be 2.7%. This will hover between 2.6% to 2.7% for the next several years well under the longer term trend. 
 
The flagship business policy in this State Budget is lifting the payroll tax exemption from $1.1 million to $1.3 million for all businesses and a special 3.75% payroll tax rate for regional Queensland businesses (normally 4.75%). This will drive growth & employment. However it is offset by businesses with a payroll above $6.5 million now required to pay 4.95% payroll tax (up from 4.75%).  13,000 business benefit from lower payroll tax and 6,000 lose out from higher payroll tax.
 
Tax revenue in 2019-20 will increase by 8.3% the highest growth since 2013-14. Over the next four years: payroll tax winners save $885 million; payroll tax losers pay an additional $544 million; some property owners through increased land tax will pay collectively another $778 million and the petroleum industry will pay another $476 million (see below for further details).
 
These proceeds are undoubtedly being utilised to fund the infrastructure budget and the continuing increase in public service headcount (up from 229,246 in 2018-19 to 233,637 in 2019-20) to improve hopefully frontline service delivery.  

In closing, the Budget cements what the State Government does well - spending and I don't mean this negatively. It hand on the heart believes this is in the best interests of our economy when nationally and globally things are slowing.  The State Government is taking an approach of priming the Queensland economy through expenditure on infrastructure and frontline services.  However, in doing so, it is also making a controversial call of singling out big business through higher payroll tax, the petroleum industry and higher end land owners to cover the bill.  

These sectors are also key elements of our economy.  It is a gamble of sorts - that the diminished economic activity from these three sectors as a result o these higher taxes will be more than made up by an economy wide Government spending spree.  This is a gamble I would not make and a safer option would be to find a way to make frontline service delivery improve without throwing additional public servants at the problem.

QEAS Business Update: State Budget Special available here

QEAS presentation to the QMCA Breakfast available here 

 

 

 

QEAS preview of the 2019-20 Queensland State Budget

As the foremost instrument of both fiscal and economic management all eyes will be on the State Budget next week. On Tuesday 11th June the Hon Jackie Trad, Treasurer, will be delivering her second State Budget.  The below are key criteria that can be used to objectively assess how good the State Budget is for Queenslanders:

  1. What is the revised surplus for 2018-19?   Is it in line with the December MYFER estimate of $524 million for 2018-19? This is really going to come down to whether the costs of this year’s Northern Queensland floods exceed what will once again be increasing coal royalties.  
  2. What are the surpluses for 2019-20 and across the forward estimates?  Forecast at the MYFER, to be a modest $193 million in 2019-20 and $145 million in 2020-21.  In general I believe there to be a trend of reduction in the surplus sizes as a consequence of an absence of Cross River Rail funding from Canberra but also the bolted on additional expense of public service numbers.   The change in GST carve up receipts is in theory neutral to Queensland.  Any upside will almost certainly be channelled into cost of living sweeteners and other recurrent expenditure.
  3. What is the revised level of taxation and other receipts for 2018-19 and 2019-20?  At the MYFER revenue and tax growth were to be stronger in 2018-19. The revenue windfall in 2018-19 was to be $1.264 billion thanks to coal royalties revised up by $1.8 billion over the next 3 years.  In looking to 2019-20 it is a question of whether coal royalties will continue to lay the golden egg for Queensland.  However there are other favourable trends such as payroll tax (a tax on giving someone a job) and the added State Government’s ‘robin hood’ taxes including the 7% transfer duty surcharge applied to foreign buyers of Queensland property (raising $99m over 3 years) and a new land tax category for 850 large property holdings greater than $10m (raising $227m over 3 years).  Queensland will also have the new waste levy commencing 1 July anticipated to deliver $1.3 billion over coming years.  The downside will be reductions in land tax and duties thanks to a cooling property market. Tax revenue in the MYFER was forecast to increase by 7.2% in 2018-19 and 6.5% in 2019-20.
  4. How much is Government expenditure growing by in 2018-19 and 2019-20 and have they kept a lid on growth?  Expenditure in the MYFER was forecast to grow by 3.8% in 2018-19 and by 1.6% in 2019-20.  This was quite a blow out from the original State Budget where expenditure in 2018-19 was only meant to grow by 1.5%.  This is courtesy of employee related expenses forecast to grow by a whopping 5.8% in 2018-19 and by 3.6% in 2019-20. This is where the State Budget is very exposed. It is difficult to turn off the expenditure tap once on and I can’t see it being done easily. Public service numbers and forecasted headcount are contained in the State Budget and we will need to check these against population growth of 1.75% in 2018-19 and 2019-20. 
  5. What is the budget repair across the forward estimates?  As part of the election, Queensland Labor announced only a modest budget repair of $261 million over the forward estimates.  Election commitments totalled $2.8 billion and total budget repair measures of $3.0 billion in recurrent expenditure savings, tax increases and capital reprioritisation measures were announced. Generally speaking there is risk associated with the 'repair' as what we spend is guaranteed but what we earn is not.
  6. Is government debt rising or falling in 2019-20 and over the forward estimates of the Budget? For example in the MYFER public sector borrowings in 2018-19 were anticipated to be $71.6 billion and by 2021-22 debt will have increased to $83.5 billion.  There is no question debt will be rising it is just a question of whether it will rise faster than committed to in 2018-19 State Budget and at the MYFER.  My pick is we will be taking on more and this was confirmed yesterday by the Treasurer.
  7. What are the economic and revenue forecasts for the next four financial years and are they realistic? In the MYFER, Queensland's economy was forecast to grow by 3% in 2018-19, employment by 1.5% and an unemployment rate at 6.0%.  For 2019-20 GSP is forecast to grow by 2.75%, employment by 1.75% and an unemployment rate of 6%.  Economic growth is one of the largest influences on revenue receipts outside of coal royalties where global demand and commodity prices influence royalty receipts.  Each of these will have assumptions to cross reference against reality.
  8. What infrastructure projects will be announced? According to MYFER, infrastructure spend in 2018-19 is forecast to track at 2.9% of GSP.  However with cross river rail (CRR) now having a shortfall in funding I initially anticipated other infrastructure projects to suffer to sure up the State Government’s flagship CRR.  This will not be the case with the Treasurer confirming they will take on more debt to keep their committed to infrastructure projects underway.  Infrastructure spend as a percentage of GSP is forecast to fall to 2.7% in 2020-21 and 2.5% in 2021-22.  I believe it will go even lower.  Hence the resource sector has been asked to cough up an extra $70 million for a regional infrastructure fund (temporarily on hold subject to a potential Crime and Corruption Commission investigation with the Treasurer accused of blackmailing the resources sector by the Opposition) .
  9. What economic and job growth initiatives will be announced?  It is hard to see any new announcements in the context of a State Budget under strain but rather the rearticulation of the initiatives announced over the course of the previous few years.  
  10. Are there any items from left field? It’s a safe bet we will not see any asset sales on the agenda but are there any other things to grab our attention.

The framing of this budget is dramatically different to recent years.  The ‘Gods of revenue’ are no longer smiling on Queensland.  The Sunshine State is switching from a 2018-19 budget with revenue receipts cascading in to a 2019-20 budget under strain from only modest revenue growth but with expenditure continuing to grow.

Under this scenario it is hard to see impressive surpluses and huge infrastructure announcements.  My pick is this will be a more austere State Budget with some humble announcements and focus on addressing frontline service delivery issues and assisting Queenslanders in need.  This will all be in the context of the State taking on more debt.

Queensland's Domestic Economic Activity - March Quarter 2019

Queensland's domestic economy grew by 0.4% (trend) and 0.5% (seasonally adjusted) in the March Quarter 2019. Over the past year Queensland's domestic economy grew 1.3% (trend) & 1.4% (seasonally adjusted). Australia is split down the middle NSW, VIC & TAS doing well, SA, QLD & WA not so well. Queensland's domestic economic activity has been easing since late 2017. The 1.3% growth compares to the 5 year average of 0.6%; the 10 year average of 1.8% and the 25 year average of 4.1%

National Minimum Wage and 122 modern awards to rise 3 per cent

QEAS has summarised the Annual Wage Review made by the Fair Work Commission this week.  Please see below.  For the full decision please click here

In summary the FWC determined that it was appropriate to increase the NMW by 3.0 per cent. The new NMW will be $740.80 per week, or $19.49 per hour. This amounts to an increase of $21.60 per week to the weekly rate. 

For the record QEAS predicted a 3.25 per cent increase.  Given the only recent economic data confirming a weakening of the Australian economy, QEASs' prediction is largely consistent with the final decision of 3 per cent made by the FWC.  For QEAS's original blog please click here.  Proposed increases by interested parties to the Annual Wage Review are provided in the below graph.

The decision is less than the average increase over the past nine years which has been $19.50 or 3.2 per cent.

……………………..

The Fair Work Act requires the Fair Work Commission’s (Commission) Expert Panel for annual wage reviews (Panel) to conduct and complete a review of the national minimum wage (NMW) and minimum wages for the 122 modern awards each financial year. 

Around 2.2 million employees or 21.0 per cent of all employees have their wages set by the NMW or by a modern award minimum wage and will be directly affected by this decision. This decision is also likely to affect employees paid close to the NMW or a modern award minimum wage rate and those whose pay is set by a collective agreement which is linked to the outcomes of the Review, as well as workers whose pay is set by individual arrangements which are referenced to a modern award minimum wage rate. 

Both the minimum wages objective and the modern awards objective require the Panel to take into account: 

  • promoting social inclusion through increased workforce participation;
  • relative living standards and the needs of the low paid;
  • the principle of equal remuneration for work of equal or comparable value; and 
  • various economic considerations.

Despite the recent fall in GDP growth, the Australian economy has performed moderately well and the relevant data are all indicative of a strong labour market. Although business conditions have declined from the high levels recorded in the first half of 2018, they remain consistent with trend growth in the economy and the labour market has performed strongly.

As the RBA has recently observed, ‘[although GDP growth has moderated, employment has continued to expand by enough to reduce spare capacity in the labour market over the past year’. The Australian Government expects the economy to grow at its potential rate and to support future increases in employment. The proportion of the working-age population that is in employment is at record levels. 

The prevailing economic circumstances provide an opportunity to improve the relative living standards of the low paid, and to enable them to better meet their needs, by awarding a real increase in the NMW and modern award minimum wages. No party identified any data which demonstrated adverse employment or other effects arising from the previous 2 Review decisions, each of which resulted in real wage increases for NMW and award-reliant employees.

Our overall assessment is that the relative living standards of NMW and award-reliant employees have improved over recent years, although some low-paid award-reliant employee households have household disposable incomes less than the 60 per cent of the median income relative poverty line. 

We have decided to award a lower increase this year than that awarded last year having regard to the changes in the economic environment (in particular the recent fall in GDP growth and the drop in inflation) and the tax-transfer changes which have taken effect in the current Review period and which have provided a benefit to low-paid households. 

We are satisfied that the level of increase we have decided upon will not lead to any adverse inflationary outcome and nor will it have any measurable negative impact on employment. However, such an increase will mean an improvement in real wages for those employees who are reliant on the NMW and modern award minimum wages and an improvement in their living standards. 

We have determined that it is appropriate to increase the NMW by 3.0 per cent. The new NMW will be $740.80 per week, or $19.49 per hour. This amounts to an increase of $21.60 per week to the weekly rate. 

We have also decided to increase all modern award minimum wages by 3.0 per cent. 

We acknowledge that the compounding effect of increases over time may have a cumulative effect which is not apparent in the short term. We will continue to closely monitor this in future reviews. 

The determinations and order giving effect to our decision will come into operation on 1 July 2019. The increases we have determined will take effect from the start of the first full pay period that starts on or after 1 July 2019 in accordance with ss.286(5) and 287(5) of the Act. 

 

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